Jordan Central Bank Statement

Author: | Published: 5 Sep 2017

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The Jordanian economy showed resilience amidst regional
turmoil proving yet again that proper policy making can
mitigate risks. Despite closure of export routes, lower tourism
revenues and oil-price volatility, GDP growth in 2016 was 2%
and reflected mining contraction and a slowdown in agriculture.
The Central Bank of Jordan (CBJ) continues its efforts to
enhance the business environment and improve competitiveness,
governance and sustainability. Our focus is on reducing the
cost of business startups by simplifying procedures and further
strengthening investor protection. In addition, recent
indicators show some improvement in remittances, tourism and
exports. Thus, assuming regional conditions remain broadly
unchanged, growth is expected to reach 2.3% in 2017, and in the
medium-term on account of improvements in tourism and exports,
it is expected to reach at least 3% by 2020. Moreover, the
fiscal balance and debt-to-GDP ratio are expected to improve,
while inflation is expected to reach 2.5% at the end of 2017,
following two years of disinflation of around 0.8% in 2016 and
2015.

The CBJ has pegged the exchange rate of the Jordanian dinar
to the US dollar since 1995, which provides an appropriate
nominal anchor and remains the key pillar of both monetary and
financial stability. This regime has served our economy well
over the past two decades, and continues to underpin resilience
in a region of uncertainty. In addition, it contributes to
strengthening confidence in the Jordanian dinar as an
attractive tool for domestic savings and attracting domestic
and foreign investments, as well as maintaining monetary
stability.

The pegging of the dinar to the dollar remains the optimal
exchange rate regime. In this context, the CBJ will always
maintain a suitable margin between the interest rates on the
dinar and the dollar, and will monitor dollarization, foreign
reserves and inflation as key factors to a well-functioning peg
policy. In line with this policy, three recent increases in
policy rates were appropriately priced and implemented by a
cumulative 100 basis points, which contributed to mild deposit
dollarization and a stable policy stance.

Taking into consideration the importance of the banking
sector, which remains the main engine of growth in Jordan, the
CBJ has also been working on strengthening the banking system.
In this regard, in 2016 the CBJ issued a revised set of
regulations for banking and new regulations for corporate
governance for Islamic banks. These regulations complement
earlier efforts to improve the quality of the banking sector
and further streamline it with international practices. The CBJ
also issued corporate governance regulations for information
and related technology based on control objective for
information and related technology. In
addition, within the same efforts in regard of capital
adequacy, the CBJ issued Basel III regulations for regulatory
capital since September 2016. The CBJ is also in the process of
drafting a regulation for liquidity coverage ratio (LCR) based
on Basel III principles, which is an added improvement to the
current regulation for liquidity requirements.

As a result, bank financial soundness indicators showed a
marked improvement in 2016. The ratio of nonperforming loans
(NPL) to total loans declined to 4.4%, with a coverage ratio of
78.2%. The banking system remains well-capitalized with a
capital adequacy ratio (CAR) of 19%, and good performance
ratios represented by a return on equity (ROE) of 8.8%, and a
ROA of 1.1%. Meanwhile, the banking system has maintained a
liquidity ratio of 138.1% as of 2016.